Problem P5-1 Variable and Full Costing: Sales Constant but Production Fluctuates
ID: 2370420 • Letter: P
Question
Problem P5-1 Variable and Full Costing: Sales Constant but Production Fluctuates
Spencer Electronics produces a wireless home lighting device that allows consumers to turn on home lights from their cars and light a safe path into and through their homes. Information on the first three years of business is as follows:
2011 2012 2013 total
Units sold $15,000 $15,000 $15,000 $45,000
Units produced $15,000 $20,000 $10,000 $45,000
Fixed production costs $750,000 $750,000 $750,000
Variable production costs per unit 150 150 150
Selling price per unit 250 250 250
Fixed selling and administrative expense 220,000 220,000 220,000
Required:
Part a: Calculate profit and the value of ending inventory for each year using full costing.
2011 2012 2013
Fixed manufacturing overhead Amount Amount Amount
Divided by ??? Number Number Number
Title Formula Formula Formula
Tiltle Amount Amount Amount
Full cost per unit Formula Formula Formula
Sales Amount Amount Amount
Less cost of goods sold:
2008 Formula
2009 Formula
2010 Formula
Gross margin Amount Amount Amount
Less ??? Amount Amount Amount
Net income Formula Formula Formula Formula
Ending inventory 2008 Formula
Ending inventory 2009 Formula
Ending inventory 2010 Formula
Part b: Explain why profit fluctuates from year to year even though the number of units sold, the selling price, and the cost of structure remain constant.
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Part c: Calculate profit and the value of ending inventory for each year using variable costing.
2011 2012 2013
Fixed manufacturing overhead Amount Amount Amount
Title Amount Amount Amount
Units sold Amount Amount Amount
Selling price per unit Value Value Value
Sales Formula Formula Formula
Less??? Amount Amount Amount
Title Formula Formula Formula
Less fixed costs:
Title Amount Amount Amount
Title Amount Amount Amount
Tilte Formula Formula Formula Formula
Ending inventory 2008 Amount
Ending inventory 2009 Amount
Ending inventory 2010 Amount
Explanation / Answer
Sales ($200 * 10000 units sold) $2000000
Less: Fixed production cost $600000
Less: Variable production cost ($100 * 10000 units sold) $1000000
Less: Fixed selling and admin expense $200000
Net profit $200000
Since, quantity produced is equal to quantity sold, you won't have any ending inventory unless you have undisclosed beginning inventory.
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